Clarification Note on Donations

PRETORIA, Friday, 23 AUGUST 2019 - SARS’ strategic intent is to engender a culture of voluntary compliance amongst taxpayers. As part of meeting this objective, SARS will be issuing clarification notes to provide information to the public on various issues that are topical in the current environment. In this instalment, SARS addresses donations.

Various questions are being raised regarding the nature of donations and their tax implications. The purpose of this clarification note is to briefly set out what would constitute a donation and be taxed, as well as the impact of paying an amount without it being a donation.

DONATION

The term “donation” refers to a gratuitous disposal of property. A donation requires an element of sheer liberality on the part of the donor, thus highlighting the requirement that the transaction must be gratuitous in nature. Where there is an element of expectation for something to be given in return, it can therefore not be a donation.

So where it is confirmed that a donation has been made, there are various implications from a tax point of view that must be considered. The key aspects relating to tax are:

  • Whether donations tax is payable.
  • Whether the donation is tax deductible.


DONATIONS TAX


Firstly, donations tax applies to any individual, company or trust that is a resident as defined in the Income Tax Act. What this means is that non-residents are not liable for donations tax.

Secondly, the law contains a list of exempt donations, which include, amongst others, donations between spouses and to any sphere of government, any registered political party, or any approved public benefit organisation.

Most importantly, a donation will further be exempt if the total value of donations for a tax year does not exceed:

  • R100 000 of property donated by a natural person.
  • R10 000 of casual gifts in the case of a taxpayer who is not a natural person. In other words, these are casual gifts by, for example, companies and trusts.

Also qualifying for exemption from donations tax is any bona fide contribution made by the donor towards the maintenance of any person. While not limited to a specific amount, this exemption is limited to what the Commissioner considers reasonable. This is intended to cover cases such as supporting a child etc.
Donations tax must be paid to SARS by the end of the month, following the month during which the donation was made. The person making the donation (donor) is liable for the tax, but if the donor fails to pay the tax within the set period, the donor and donee are jointly and severally liable for the tax.

After making a donation, the donor should fill in a form IT144 (Declaration by donor / donee and submit it to the nearest SARS branch with proof of payment. Donations tax can be paid via eFiling.


Donations Tax is leviable at a flat rate of 20% on donations up to a cumulative value of R30 million and at a rate of 25% thereafter.


TAX DEDUCTIBILITY OF BONA FIDE DONATIONS


The Income Tax Act allows for a deduction, against the taxable income of any taxpayer, of any bona fide donation made to, for example, any approved organisation, agency, institution or department of government listed in section 18A(1) of the Act. The deduction is, however, limited to 10% of the taxpayer’s taxable income. The amount of donations exceeding 10% of the taxable income is treated as a donation which was made in the following year of assessment.


TRANSACTIONS NOT REGARDED AS DONATIONS


Where a transaction is not gratuitous in nature (for example, a once-off payment to secure a contract), there can be no donation as defined and, therefore, no donations tax. Although transactions of this nature may not be subject to donations tax, income of this nature or the proceeds of unlawful activities and/or receipts (such as bribes) are generally taxable.

In addition, section 23(o) of the Act prohibits the deductibility of expenditure (including donations), in respect of corrupt or illegal activities such as bribes, fines and penalties.

Disclaimer: This clarification note only provides general guidelines.  It does not delve into the precise technical and legal detail that is often associated with tax, and should, therefore, not be used as a legal reference. It does not create a practice generally prevailing. ENDS

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